CTPS 13.3 Policy on the use of skilled persons

The appointment of a skilled person to produce a report under section 166 (Reports by skilled persons) of the Act is one of the FCA’s regulatory tools. The tool may be used for any matter including:

1. (1)

   for diagnostic purposes, to identify, assess and measure risks;

2. (2)

   for monitoring purposes, to track the development of identified risks, wherever these arise;

3. (3)

   in the context of preventative action, to limit or reduce identified risks and so prevent them from crystallising or increasing; and

4. (4)

   for remedial action, to respond to risks when they have crystallised.

The use of the tool could be prompted by any matter, including:

1. (1)

   a specific requirement by the FCA for information;

2. (2)

   an analysis of information undertaken by the FCA;

3. (3)

   an assessment of a situation by the FCA;

4. (4)

   expert advice or recommendations received by the FCA; or

5. (5)

   a decision by the FCA to seek assurance in relation to a regulatory report or its compliance with any part of CTPS.

The tool may also be used as part of the oversight programme applicable to a critical third party. It may be prompted by an event or development in relation to a critical third party or by a need for verification of information provided to the FCA as part of ongoing monitoring of a critical third party.

The FCA encourages a critical third party to speak to its overseers before commissioning any external review on subject matters which may be of interest to the FCA. This may avoid the critical third party incurring unnecessary costs where the FCA wishes to make use of skilled persons on the same, or broadly the same, matter.

The appointment of a skilled person to collect and update information under section 166A (Appointment of skilled person to collect and update information) of the Act is another one of the FCA’s regulatory tools. It may be used where the FCA considers that a critical third party has failed to collect, or keep up to date, information required by the FCA.

When making the decision to require a report by a skilled person under section 166 (Reports by skilled persons) or the collection or updating of information by a skilled person under section 166A (Appointment of skilled person to collect and update information) of the Act, the FCA will have regard, on a case-by-case basis, to all relevant factors. Those are likely to include:

1. (1)

   circumstances relating to the critical third party;

2. (2)

   alternative tools available, including other statutory powers;

3. (3)

   legal and procedural considerations;

4. (4)

   the objectives of the FCA’s enquiries;

5. (5)

   cost considerations; and

6. (6)

   considerations relating to the FCA’s resources.

CTPS 13.3.8G to CTPS 13.3.14G give further guidance on the factors in CTPS 13.3.6G.

The FCA will have regard to circumstances relating to the critical third party, including, for example:

1. (1)

   attitude of the critical third party: whether the critical third party is being cooperative;

2. (2)

   history of similar issues: whether similar issues have arisen in the past and, if so, whether timely corrective action was taken;

3. (3)

   quality of a critical third party’s systems and records: whether the FCA has confidence that the critical third party has the ability to provide the required information;

4. (4)

   objectivity: whether the FCA has confidence in the critical third party’s willingness and ability to deliver an objective report;

5. (5)

   conflicts of interest: whether:

   1. (a)

      it would be inappropriate for the FCA to rely on the critical third party itself to enquire into the matter because, for example, the subject matter of the enquiries or the report involves actual or potential misconduct; or

   2. (b)

      the subject matter of the report is such that the critical third party and the FCA would benefit from an external third party; and

6. (6)

   knowledge or expertise available to the critical third party: whether it would be appropriate to involve a third party with the required technical expertise.

The FCA will have regard to alternative tools that may be available, including, for example:

1. (1)

   obtaining what is required without using specific statutory powers (for example, by a visit by staff of the FCA or a request for information on an informal basis);

2. (2)

   requiring information from critical third parties and others, including authorising an agent to require information, under section 165 (Power to require information) of the Act;

3. (3)

   appointing investigators to carry out general investigations under section 167 (Appointment of investigator in general cases) of the Act if that power applies; and

4. (4)

   appointing investigators to carry out investigations in particular cases under section 168 (Appointment of investigator in specific cases) of the Act.

The FCA will have regard to legal and procedural considerations, including:

1. (1)

   statutory powers: whether one of the other available statutory powers is more appropriate for the purpose than the power in section 166 (Reports by skilled persons) or section 166A (Appointment of skilled person to collect and update information) of the Act;

2. (2)

   subsequent proceedings: whether it is desirable to obtain an authoritative and independent report for use in any subsequent proceedings; and

3. (3)

   application of the Handbook rules: whether it is important that the relevant rules in the Handbook should apply, for example CTPS 13.5.1R, which obliges the critical third party to require and permit the skilled person to report specified matters to the FCA.

The FCA will have regard to the objectives of its enquiries, and the relative effectiveness of its available powers to achieve those objectives. For example:

1. (1)

   historic information or evidence: if the objectives are limited to gathering historic information, or evidence for determining whether enforcement action may be appropriate, the FCA’s information gathering and investigation powers under section 165 (Power to require information), section 167 (Appointment of investigator in general cases) (if that power applies) and section 168 (Appointment of investigator in specific cases) of the Act may be more appropriate than the power in section 166 (Reports by skilled persons) or section 166A (Appointment of skilled person to collect and update information) of the Act if they are available; and

2. (2)

   expert analysis or recommendations: if the objectives include obtaining expert analysis or recommendations (or both) for diagnostic, monitoring, preventative or remedial purposes, the power in section 166 (Reports by skilled persons) may be an appropriate power to use, instead of, or in conjunction with, the FCA’s other available powers.

In accordance with its general policy, the FCA will have regard to the question of cost, which is particularly pertinent in relation to skilled persons because:

1. (1)

   if the FCA uses the power in section 166 (Reports by skilled persons) or section 166A (Appointment of skilled person to collect and update information) of the Act, either:

   1. (a)

      the critical third party will appoint, and will have to pay for the services of, the skilled person; or

   2. (b)

      the FCA will appoint, and will require under FEES 3.2.7R(zp) or FEES 3.2.7R(zq) that the relevant critical third party pays for the services of, the skilled person; and

2. (2)

   if the FCA uses its other information gathering and investigation powers, it will either:

   1. (a)

      authorise or appoint its own staff to undertake the information gathering or investigation (or both); or

   2. (b)

      pay for the services of external competent persons to do so,

   and in either case the costs will be recovered under the FCA’s general fee scheme.

In having regard to the cost implications of using the power in section 166 (Reports by skilled persons) or section 166A power (Appointment of skilled person to collect and update information) of the Act, alternative options (such as visits) or other powers, the FCA will take into account relevant factors, including:

1. (1)

   whether the critical third party may derive some benefit from the work carried out and recommendations made by the skilled person, for instance a better understanding of its business and its risk profile, or the operation of its information systems, or improvements to its systems and controls;

2. (2)

   whether the work to be carried out by the skilled person is work that should otherwise reasonably have been carried out by the critical third party, or by persons instructed by the critical third party on its own initiative; for instance, a compliance review or the development of new systems;

3. (3)

   whether the critical third party’s record-keeping and management information systems are poor and:

   1. (a)

      the required information and documents are not readily available; or

   2. (b)

      an analysis of the required information cannot readily be performed without expert assistance;

4. (4)

   whether the critical third party appears to have breached requirements or standards under the regulatory system or otherwise put the integrity of the UK financial system at risk, and it is unable or unwilling to review and remedy the matters of concern, or the FCA considers that it cannot rely on the critical third party to do so;

5. (5)

   the extent to which there appear to be risks that could threaten the FCA’s objectives; and

6. (6)

   the perceived probability and seriousness of possible breaches of regulatory requirements and the possible need for further action.

The FCA will have regard to FCA-related considerations, including:

1. (1)

   whether the FCA has the necessary expertise; and

2. (2)

   whether the resources required to produce a report or to make enquiries, or to appoint a skilled person itself are available within the FCA, or whether the exercise will be the best use of the FCA’s resources at the time.